Few people get rich all at once. The chances of winning a lottery or receiving inheritance are very small.
Here are 7 steps to becoming financially independent. With patience and hard work, you can follow these steps and find financial freedom for yourself.
1) The Financially Dependent stage is when you depend on others. This is the transition stage from receiving financial aid from parents to being financially solvent. It’s important to understand that it is ok to be in this stage while you get on your feet, but that it is not a means to an end. You must use this time to plan and work towards creating a financial plan that is independent.
2) Financially Solvent. In this stage you are capable of supporting yourself with your own income, and you no longer rely on the financial assistance of your parents. This is the phase in which you must start a savings account, and think about budgeting so that you can be in a strong position within a few years.
3) Financially Stable. You become financially stable when you not only cover your current expenses with your income, but in addition you can free up some cash for emergency cases. When you are able to create such a buffer, then you have reached financial stability.
4) Financially Secured.You become financially secured when you no longer have to work full time to cover all your expenses. For example, some of your expenses (housing, utilities, insurance, etc.…) may be covered by your income from your investments.When you are able to cover all your expenses with your investment income, then you have achieved a high level of financial security.
5) Financially Independent. This is the stage when you reach the highest level of financial security and can afford to pay all your expenses including some luxury ones with the income from your investments. So in addition to covering your required expenses like housing, you have the savings required to spend money on some indulgent luxuries without breaking your bank or going into debt.
6) Financially Free. This is the most challenging stage of the road to financial Independence.This is the point when you become fully financially independent and achieve true financial freedom. You are able to afford to buy everything you like, and to make your life goals real. Now you own more than you need to fund your lifestyle, an you therefore have a significant margin of safety. This is the most important stage as at this stage you are responsible to control and wisely allocate your funds to work for you. At this stage, you should have a savings account and retirement account with adequate savings. If you are simply spending what you have, it means you have not yet become truly financially free.
Going through these stages is a real challenge, but one must find the courage to put all their efforts into reaching the last stage of Financial Independence. Once you are able to achieve that stage, you will truly be independent and financially free.